Download The Problem The Solution - Brazos Valley Affordable Housing

The High Cost of Payday and Title Loans
Social Science Research is showing that personal financial instability is a contributing factor in workplace stress, resulting in lower
productivity.
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Financially stressed workers have lower quality and quantity of work
Financial duress linked to stress-related illness and employee absenteeism
Financial stress blamed for tardiness, conflicts, accidents and incomplete tasks
12,000,000 Americans have turned to payday lenders for help
Typical payday borrower takes 9 loans per year at 400% interest
Workers suffering from stress cited with higher health care costs
Distressed workers struggle with irritability, anger, fatigue, sleeplessness and lower workplace morale
Presenteeism - dealing with personal problems on the job which are unrelated to work-costs employers $180 billion each
year
 HR Managers: distractions from financially stressed workers costs 10% of typical HR Dept. budget
 Financial assistance fringe benefit reduces employee turnover
Texas Community Capital (TCC) will expand an employer-based small dollar alternative loan product currently being
piloted in the Rio Grande Valley of Texas to additional markets in Texas. The goal is to provide a sustainable and scalable low-cost market based alternative to very high priced consumer loans in Texas. When this expansion pilot is proven
successful, we will further expand the program across Texas and eventually into other states.
The Community Loan Center is a free Employer Benefit that can help address these issues in the workplace.
The Problem
Investment Opportunities
The CLC program is designed to be financially self-sustaining once sufficient loan volume is established. We estimate that once a
CLC local lender can originate between 110 and 125 loans per month, that the organization should have enough revenue on a
monthly basis to break even. However, it will take participating locations time to ramp up to this volume of loans. Therefore, the
program will require financial investment and support initially.
At this time, TCC is in discussion with funders regarding four main types of support, including
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TCC Statewide and Regional Loan Pools. Each local lender will be responsible for raising loan capital locally to support their
lending activities. TCC will need to raise loan funds to serve employees outside of the local CLCs areas.
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Texas Community Capital Administration. TCC estimates that it will need to raise roughly $400,000 over two years to bring
the CLCTX program to fruition.
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State and Local Loan Loss Reserve. It is important to recognize that the CLCTX Program will experience losses and TCC
and each local CLC will need to prepare to replenish their loan pool and account for losses. TCC estimates that each organization should anticipate having five percent available for loan losses.
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Local CLC Administration. Each local CLC lender will have startup and administrative costs associated with the program
before they can become sustainable. The cost for each organization will largely depend on salary and capital costs.
There is a crisis in communities across Texas where scarce assets are being stripped away from lower-paid
workers through high costs loans. Most of us occasionally require additional money for unbudgeted expenses
such as car repairs, medical payments, education, rental deposits, etc. Lower-paid workers often don’t have
the means to save even one thousand dollars as a reserve for these unexpected needs, so when the need arises,
a loan is required. However, Texas has some of the most lenient payday and auto title lending regulations of
any state. Payday and auto title lenders have targeted low-income areas with marketing campaigns for quick
loans that end up costing the equivalent of 400-700% in interest and fees, placing a huge burden on those
borrowers who can afford it least. These excessively expensive loans strip assets from lower-paid Texas
workers and trap inexperienced borrowers in a cycle of debt that is extremely difficult to pay off. Social researchers report that payday and car title loans with excessive fees and interest create financial burdens, additional stress, increased absenteeism from work and school and even bankruptcies, especially for lower paid
families. These inexperienced borrowers become trapped in a cycle of debt and a better alternative is needed
for small-dollar, short-term loans.
The Solution
Advisory Committee
As part of TCC’s efforts to expand the program statewide, we have formed and Advisory Committee of professionals interested in seeing the CLC Program Loan Center succeed. These members represent funders, policy advocates,
CLC participants, and regulators committed to providing ongoing guidance and support to the program. Current
members include:
Catherine Meyrat, InnoStratX
Ann Baddour, Texas Appleseed (Chair)
Woody Widrow, RAISE Texas
Edwina Carrington, Consultant
Nick Mitchell Bennett, Rio Grande Valley Multibank
Tom Wilkinson, Brazos Valley Council of Government s
Kevin Jewell, Consultant
Debbie Taylor, Citi
Susan Hoff, United Way of Metropolitan Dallas
Eliza Platts-Mills, University of Texas Community Development Law Clinic
Alfreda Norman, Federal Reserve Bank of Dallas
Shannon Van Zandt, Texas A&M, Housing & Urban Development
People need short-term loans that are quick and easily accessible. The proliferation of payday lenders proves
this without a doubt. However, small dollar loan borrowers should have access to funds with reasonable terms.
Texas Community Capital (TCC) will expand statewide an employer-based small dollar loan program currently
operating in the Rio Grande Valley. The program allows employees the opportunity to borrow up to $1,000 at
18 percent interest and a small fee of $20.
Texas Community Capital is creating the Community Loan Center Small Dollar Loan Program to provide access
to affordable credit for workers who may otherwise turn to expensive payday and auto title loans. TCC will recruit non-profit community organizations to operate the program in select markets. Each non-profit will recruit
the local employers to participate in the program at no cost and will raise loan funds for the program, both locally and conjunction with TCC. TCC will contract with the current small dollar program administrators at the
Community Loan Center of Rio Grande Valley (CLCRGV) to process and service the loans. CLCRGV staff is
contracted from the Community Development Corporation of Brownsville, the largest provider of affordable
homeownership in the Rio Grande Valley.
Small Dollar Loan Program Relationships
The Opportunity
TCC
Texas Community Capital is currently working with organizations in Houston, Dallas, Austin, Laredo, Odessa, and the
Brazos Valley in order to expand the program with the goal of
originating the first loans outside of the Rio Grande Valley in
2014.
The Program
To address this rapidly growing problem with high cost lenders,
The Rio Grande Valley Multibank CDFI (RGVMB), created the
Community Loan Center (CLC) of the Rio Grande Valley, an employer-based short-term consumer loan program. Texas Community Capital is expanding this program statewide. The goal of CLC
is to provide workers with an alternative to predatory loans and
demonstrate that an inexpensive, small-dollar loan product can be
a successful social enterprise for nonprofits. Investment capital is
solicited for lending capital and local employers are recruited into
the program at no cost to the employer. Employees may borrow
up to $1,000 at 18% interest, with a $20 processing fee, up to 12
months to repay (no prepayment penalty), no credit reports, quick
approvals, no collateral, and repayment through convenient payroll
deductions. Employees will apply for the loan online and access
their account anytime with easy-to-use, web-based software. Loan
proceeds are wired directly into the employee’s bank account, usually within 24 hrs., and loan payments begin with the next
paycheck. Loan processing and loan servicing are done at the Rio
Grande Valley Multibank.
Investors and
Lenders
Statewide Licensed Lender
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Recruits Nonprofits and
Investors.
Contracts with CLC and
helps with marketing and
raising capital.
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The Innovation
The CLCTX model is innovative compared to other small dollar
loan products in a few key ways.
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CLCTX program limits the overhead costs that other
groups have incurred by opening up their program to any
member of the public. A storefront model may ultimately
prove sustainable, but the growth and capital needs will be
less predictable compared to recruiting clients through an
employer-based model where growth can be better managed.
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Local CLCs
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Recruit Local Employers
and Investors.
Market to employees.
Provides financial education to borrowers.
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Rio Grande Valley
Multibank CDFI
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$ Interest
Local Companies
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Offer Loans from CLC to
Employees with Payroll
Deduction
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Pilot Results to Date
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During the first two years of operation, RGVCLC’s pilot program
originated over 1,800 loans through 30 employers with 3,135 total
employees. The program initially broke even after ten months.
Current default rate is 5 percent. Loan payments are made via
payroll deduction. Payments remain low and affordable typically
due to the low interest of 18 percent, low loan limit of $1,000,
and a one-year repayment term, which is long by current small
dollar loan standards. Additionally, financial counseling is available free of charge to anyone taking a loan through the program.
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Apply for Loan online
through CLC system.
Repay via payroll
deduction.
CLCRGV Deposits $ in Employee’s Accounts
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Community Loan
Center of the Rio
Grande Valley
Repayment made by Payroll Deduction
Employees
Accesses Investors
Capital for Loans
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&
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$
Originates and
Services Loans for
Fee
Limited Personal Interaction. Most other small dollar
loan programs are either tied to a credit union or storefront
operation where borrowers can make payments, etc. For
financial institutions and credit unions, this may make sense
as they are potentially taking a loan on the loan product to
gain a new client for other services. By contrast, our program is employer-based and encourages borrowers to make
payments through payroll deduction. By limiting the interactions with the borrower in person, the loans can be services more efficiently and the savings can be passed on to
the borrowers through the low interest rate of 18 percent.
Local Licensed Lender
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No Storefront. By working only through employers, the
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Employer-based borrowers. The key concept for our
program is that borrowers must work for a company that
has signed onto our program. Working directly with employers allows us to market to a large number of employees
efficiently through the employer. By working through employers, we provide borrowers with the option to make payments more convenient for borrowers.
Prospective Locations
At this time, TCC is working with non-profit organizations in
Houston, Laredo, Austin, Bryan/College Station, Dallas, El Paso,
Midland/Odessa and Beaumont to expand the program into
these markets. In Houston, Austin, and Dallas the Local Lenders
are a partnership between United Way and a local community
development corporation. In Bryan/ College Station, the partner will be the Regional Council of Government.
For additional information contact:
Howard Porter, Program Manager
Texas Community Capital
2200 E. Martin Luther King, Jr. Blvd
Austin, Texas 78702
512.916.0508
www.tccapital.org
[email protected]